{"id":809970,"date":"2025-02-03T08:54:44","date_gmt":"2025-02-03T06:54:44","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=809970"},"modified":"2025-02-03T08:54:51","modified_gmt":"2025-02-03T06:54:51","slug":"the-real-value-of-the-rand-in-2025","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/809970\/the-real-value-of-the-rand-in-2025\/","title":{"rendered":"The ‘real’ value of the rand in 2025"},"content":{"rendered":"\n

South Africa’s rand pushed to around R19.00 to the dollar on Monday (3 February) after US President Donald Trump took aim at the country over its controversial land laws\u2014pushing it even further from its ‘real’ value of around R11\/$.<\/p>\n\n\n\n

Posting to his ‘Truth’ social network, Trump accused South Africa of “confiscating land and treating certain classes of people very badly”\u2014alluding to the Expropriation Act that was signed by President Cyril Ramaphosa in January.<\/p>\n\n\n\n

The new laws stipulate the circumstances where the government can expropriate land in the public interest and introduce the ability to do so with ‘nil compensation’. The Act does not change the country’s Constitution, which does not explicitly make provision for this.<\/p>\n\n\n\n

Despite the government’s assurances that land rights are still safe under the new laws, the Act has been met with wide backlash, including from political parties that are serving as part of the Government of National Unity.<\/p>\n\n\n\n

Trump considers it a “human rights violation at a minimum”, and he swore to “(cut) off all future funding to South Africa until a full investigation of this situation has been completed.\u201d<\/p>\n\n\n\n

Coming amid an intensifying trade war between the United States and some of its biggest trade partners, as well as South Africa’s shaky standing within the African Growth and Opportunity Act, markets have reacted negatively to the statements.<\/p>\n\n\n\n

The rand pushed above R19.00\/$ on Monday, before pulling back slightly to around R18.96\/$.<\/p>\n\n\n\n

\"\"<\/a>
US President Donald Trump has taken aim at South Africa over controversial land laws, calling it a human rights violation and vowing to cut funding to the country.<\/figcaption><\/figure>\n\n\n\n

Real value of the rand<\/h2>\n\n\n\n

At current levels, the rand is extremely undervalued against the dollar.<\/p>\n\n\n\n

According to the Big Mac Index for 2025, the rand is around 52% undervalued against the dollar and should be trading at around R8.96\/$<\/strong>.<\/p>\n\n\n\n

\n

A Big Mac costs R51.90<\/strong> in South Africa and US$5.79<\/strong> in the United States. The implied exchange rate is R8.96. The difference between this and the actual exchange rate, R18.69, suggests the South African rand is 52% undervalued<\/mark><\/strong>.<\/p>\n<\/blockquote>\n\n\n

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\"\"<\/a><\/figure><\/div>\n\n\n

The Big Mac Index is an initiative created by The Economist that aims to measure whether currencies are priced at their \u201ccorrect\u201d level. The Index is updated twice a year\u2014in January and July.<\/p>\n\n\n\n

It is based on the theory of purchasing power parity (PPP)\u2014the notion that, in the long run, exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a Big Mac burger) in any two countries.<\/p>\n\n\n\n

The Big Mac is selected for comparison as the popular fast-food meal is widely available and remains fairly consistent in pricing; however, it is by no means an exact measure.<\/p>\n\n\n\n

One of the Big Mac index\u2019s biggest flaws is that it doesn\u2019t consider the full picture when evaluating currency differences.<\/p>\n\n\n\n

Experts have argued that because of PPP, the cost to produce a Big Mac is typically cheaper in poorer countries, thus skewing the data.<\/p>\n\n\n\n

To account for this, The Economist produces a parallel index that factors in a country\u2019s GDP per capita to draw a more accurate conclusion.<\/p>\n\n\n\n

In this ‘adjusted’ index, the rand is still heavily undervalued, though\u2014by about 40%. Adjusted for GDP, the rand should be trading at about R11.45\/$<\/strong>.<\/p>\n\n\n\n

\n

A Big Mac costs 52% less in South Africa (US$2.78) than in the United States (US$5.79) at market exchange rates. Based on differences in GDP per person, a Big Mac should cost 20.6% less. This suggests the South African rand is 39.6% undervalued<\/mark><\/strong>.<\/p>\n<\/blockquote>\n\n\n

\n
\"\"<\/a><\/figure><\/div>","protected":false},"excerpt":{"rendered":"

Threats by US President Donald Trump to cut funding to South Africa has sent the rand tumbling\u2014making an already undervalued currency worth even less.<\/p>\n","protected":false},"author":10,"featured_media":809986,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[3559,10849,21615,19039,3670],"class_list":["post-809970","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-big-mac-index","tag-donald-trump","tag-exchange-rate","tag-expropriation-bill","tag-rand"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/809970","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=809970"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/809970\/revisions"}],"predecessor-version":[{"id":809987,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/809970\/revisions\/809987"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/809986"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=809970"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=809970"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=809970"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}